Bloomberg News

Oil Declines on U.S. Retail Sales, Expected Gain in Inventories

February 14, 2012

Feb. 14 (Bloomberg) -- Oil fell in New York as sales at U.S. retailers climbed less than expected and on speculation that oil supplies advanced last week amid weak demand.

Futures declined as the Commerce Department reported that retail sales increased 0.4 percent in January, less than the 0.8 percent gain that was the median forecast of economists surveyed by Bloomberg News. Inventories rose 1.6 million barrels to 340.8 million last week, according to a Bloomberg survey. Demand is at a 12-year low.

“Retail sales grew but the pace is less than expectations,” said Kyle Cooper, director of research for IAF Advisors in Houston. “Inventories have been rising and demand is simply horrific. We are trading around the $100 level.”

Oil for March delivery dropped 17 cents to settle at $100.74 a barrel on the New York Mercantile Exchange. It reached $101.84 earlier, the highest price since Jan. 19. Crude has gained 1.9 percent this year.

Prices were little changed after the American Petroleum Institute reported oil inventories rose 2.9 million barrels to 337.8 million last week. The March contract slid 4 cents to $100.87 a barrel at 4:37 p.m. in electronic trading.

Brent oil for March settlement rose 23 cents to $118.16 a barrel on the ICE Futures Europe exchange. The March contract expires today. Brent for April fell 4 cent to $117.35.

Retail sales excluding vehicles in January climbed 0.7 percent, the Commerce Department said, more than projected in a survey of economists by Bloomberg News.

Total U.S. petroleum consumption dropped to 17.6 million barrels a day in the week ended Feb. 3, the lowest level since May 1999, the Energy Department reported on Feb. 8. Inventories rose to 339.2 million barrels, the highest level since Sept. 23.

Gasoline Demand

U.S. gasoline demand slipped 3.1 percent last week to 8.01 million barrels a day, MasterCard Inc. said in its SpendingPulse report.

“The fundamentals are still mildly bearish with high inventories,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.

The Bloomberg survey also showed gasoline inventories rose 775,000 barrels, or 0.3 percent, to 232.6 million last week. Distillate fuels, which include heating oil and diesel, fell 1.1 million barrels to 145.5 million. Refineries operated at a rate of 82.8 percent, unchanged from the previous week, the survey showed.

Euro Weakens

Prices also fell as the euro weakened against the dollar after European finance ministers canceled a meeting and as Moody’s Investors Service cut the debt ratings of six European countries.

The European Union will hold a teleconference rather than a meeting to prod Greece to do more to clinch an aid package worth 130 billion euros ($170 billion).

Moody’s reduced the debt ratings of countries including Italy, Spain and Portugal and said it may strip France and the U.K. of their top Aaa ratings, citing Europe’s debt crisis.

The euro dropped as much as 0.8 percent against the dollar. A stronger dollar and weaker euro reduce oil’s appeal as an investment alternative. The Standard & Poor’s 500 Index and the Dow Jones Industrial Average declined.

“We are back trading along the dollar and equities,” said Rich Ilczyszyn, chief market strategist and founder of Iitrader.com in Chicago.

Earlier Gains

Oil rose earlier as German investor confidence surged to a 10-month high in February and concern increased that supply from Iran would be disrupted. The ZEW Center for European Economic Research in Mannheim said its index of investor and analyst expectations rose to 5.4 in February, the highest level since April.

Iran’s governor to the Organization of Petroleum Exporting Countries, Mohammad Ali Khatibi, said today that the world won’t be able to compensate for a loss of Iranian production, according to the country’s state-run Mehr news agency.

“The market is worried that the situation in Iran will escalate and something serious will happen,” said Phillip Streible, a Chicago-based commodities broker at RJO Futures.

Yesterday’s system crash that ended electronic trading was unexplained by CME Group Inc., parent of the Nymex. CME declined to disclose what caused the failure of the Globex crude and products markets, which ended electronic trading of futures and options about a half-hour before settlement.

Oil volume in electronic trading on the Nymex today was 802,268 shares at 4:38 p.m.

--With assistance from Ben Livesey in London, Mark Shenk in New York, Lynn Doan in San Francisco, Timothy R. Homan in Washington and Jeff Black in Frankfurt. Editors: Richard Stubbe, Dan Stets

To contact the reporter on this story: Moming Zhou in New York at Mzhou29@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net


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